nep-pbe New Economics Papers
on Public Economics
Issue of 2004‒12‒12
38 papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  2. Estimating the impact of experience rating on the inflow into disability insurance in the Netherlands By Pierre Koning
  3. Reducing the administrative burden in the European Union By Paul Tang; Gerard Verweij
  4. The Impact of Fiscal Decentralization on the Budget Revenue Inequality among Municipalities and Growth of Russian By Irina Slinko
  5. Leviathanian Fiscal Competition in Heterogeneous Country By Sergey Kokovin; Evgeniy Zhelobodko
  6. Electoral cycles in Ukraine By Sergey Verstyuk
  8. Optimal Minimum Wage in a Competitive Economy. By Arantza Gorostiage; Juan F. Rubio-Ramírez
  9. Wage and Compensation Inequality — How Different? By Selén, Jan; Ståhlberg, Ann-Charlotte
  10. Pensions and external effects of ageing; effects on distribution By Kruse, Agneta; Nyberg, Kristian
  11. Is there a "Race-to-the-Bottom" in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention By Dahlberg, Matz; Edmark, Karin
  12. Productivity Spillovers of R&D in Sweden By Ejermo, Olof
  13. The Importance of Accessibility to R&D on Patent Production in Swedish Municipalities By Gråsjö, Urban
  15. The Allocation of the US Federal Budget to the States: Evidence on the Power of the Purse By Valentino Larcinese; Leonzio Rizzo; Cecilia Testa
  16. Asymmetric Capital Tax Competition with Profit Shifting By Stöwhase, Sven
  17. Exogenous Targeting Instruments as a Solution to Group Moral Hazards By John Spraggon
  18. How to Eliminate Pyramidal Business Groups - The Double Taxation of Inter-Corporate Dividends and Other Incisive Uses of Tax Policy By Randall Morck
  19. Has the Unified Budget Undermined the Federal Government Trust Funds? By Sita Nataraj; John B. Shoven
  20. Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right? By Samuel Bowles; Yongjin Park
  21. Redistributing Educational Attainment: Evidence from an Unusual Policy Experiment in India By Joydeep Roy
  22. Combining Dutch Presumptive Capital Income Tax and US Qualified Intermediaries to Set Forth a New System of International Savings Taxation By Marcel Gérard
  23. A Backward Looking Measure of the Effective Marginal Tax Burden on Investment By Johannes Becker; Clemens Fuest
  24. Microsimulating the Effects of Household Energy Price Changes in Spain By Xavier Labandeira; Jose M. Labeaga; Miguel Rodriguez
  25. Corporation Tax Asymmetries and Firm-Level Investment in Canada By Pierre-Pascal Gendron; Gordon Anderson; Jack M. Mintz
  26. Societal Institutions and Tax Effort in Developing Countries By Richard M. Bird; Jorge Martinez-Vazquez; Benno Torgler
  27. Taxing Consumption in Jamaica: The GCT and the SCT By Kelly D. Edmiston; Richard M. Bird
  28. Existence and Efficiency of a Price-Taking Equilibrium in an Economy with Public Goods, Externalities and Property Rights: A Coasian Approach By John P. Conley; Stefani C. Smith
  29. Taxes, Regulations, and the Value of U.S. and U.K. Corporations By Ellen R. McGrattan; Edward C. Prescott
  30. Public Good Provision nad the Comparative Statics By Craig Brett; John A. Weymark
  31. Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation By Narayana Kocherlakota
  32. Edgeworth and Lindahl-Foley equilibria of a general equilibrium model with private provision of pure public goods By Monique Florenzano; Elena Laureana Del Mercato
  33. Do tax sparing agreements contribute to the attraction of FDI in developing countries ? By Céline Azémar; Rodolphe Desbordes; Jean-Louis Mucchielli
  34. Public statistics and private experience : Varying feedback information in a take or pass game By Steffen Huck; Philippe Jehiel
  35. Pension reform, assets returns and wealth distribution By Falilou Fall
  36. International tax abitrage via corporate income splitting By Satish Chand
  37. The impacts of greenhouse gas abatement policies on the predominantly grazing systems of South-western Australia By Elizabeth H. Petersen; Steven Schilizzi; David Bennett
  38. FISCAL IMPACTS OF SOCIAL SECURITY REFORM IN BRAZIL By André Portela Souza; Hélio Zylberstajn; Luís Eduardo Afonso; Priscilla Matias Flori

  1. By: Constantino Cronemberger Mendes; Maria da Conceição Sampaio de Sousa
    Abstract: In this paper we estimated the demand for local public spending for the Brazilian municipalities within a median voter's framework. Results obtained are consistent with the theoretical background thus suggesting that this hypothesis might be useful to describe the demand for local public goods in Brazil. In particular, the use of quantile regression permitted to investigate the impacts of the conditioning variables on local public expenses across different expenditures classes thus allowing for heterogeneity across municipalities. Our results also suggest that the impact of the city size on the quality of club goods shows crowding effects as g is between zero and one. However, in the estimated models, marginal congestion slightly decreases with expenditure. This is a rather surprising result as one is tempted to conclude that the congestion effect should be higher on big cities. Yet, a more careful look shows the drawbacks of such interpretation. The indivisibilities that preclude the provision of certain services in small towns, concentrate their provision on larger cities. Hence, the higher expenditures of those big cities reflect not only a crowding cost but also the fact that these towns offer a wide range of services when compared to the small ones. So, in Brazil, contrary to the traditional results, the reduced congestion effect along the spending classes reflect the predominance of the scale elements measured by the population elasticities over the price effects.
    JEL: H70 C31 H72
    Date: 2004
  2. By: Pierre Koning
    Abstract: This paper examines the effects of experience rating on the inflow into disability insurance (DI) in the Netherlands, using unique longitudinal administrative data from the Dutch social benefit administration for the years 2000-2002. We follow a difference-in-differences approach to identify the impact of changes in DI premiums. In particular, due to unawareness of the experience rating system, employers seem to have been triggered to increase preventative activities, once they have experienced increases in DI premium ('ex post incentives'). <P> We find the impact of experience rating to be substantial, amounting to a 15% reduction of the inflow into DI. This finding is robust with respect to various alternative specification alternatives. <P> We conclude that the decision of employers to increase preventative activities seems mainly an issue of being aware of the experience rating incentive.
    Keywords: experience rating; disability; disability insurance; panel data
    JEL: H22 I12 C23
    Date: 2004–08
  3. By: Paul Tang; Gerard Verweij
    Abstract: The Netherlands wants to reduce the administrative burden for businesses between 2003 and 2007 with a quarter. With the aid of the so called Standard Cost Model, the burden is estimated to amount to 16.4 billion euro in 2002. This is about 3.6 % of the Dutch gross domestic product (GDP). However, a significant part of the administrative burden, over 40% of the total, is the direct result of international, mainly European legislation. This makes the reduction of the administrative burden a European issue. Besides, a reduction in one member state may affect the economies in other member states. <P> This memorandum considers the direct and indirect effects of reducing the administrative burden on firms. Reducing the burden is expected among other things to boost investment, adding to the increase in production and labour productivity. For an individual country a unilateral reduction probably has different effects than a reduction that is part of a co-ordinated, European effort to scale down the administrative burden of government regulations. <P> To assess the indirect effects, within the economy of the European Union and between European economies, we employ the CPB’s general-equilibrium model WorldScan, which simultaneously takes account of the different product and factor markets in the world economy and which models many European economies in detail. The Netherlands is one of the very few countries, which currently has detailed information on the administrative burden of government regulations. Therefore, we assume that the key figures for the Netherlands also hold for the other member states of the European Union. This assumption implies that for the whole European Union an administrative burden exists of 340 billion euro in 2002. Better data for other member states are needed to arrive at a complete assessment of direct and indirect effects. <P> Conclusions <P> Based on Dutch data, reducing the administrative burden with 25% leads to a 1.7% increase in real GDP for the European Union. The long-term effect is higher than the initial impact, since the reduction induces extra capital accumulation and brings spillovers from extra R&D. The production growth is not fully translated into welfare gains. The gap between the two follows from a loss in terms-of-trade, but is generally small. For individual EU-25 member states the effects are broadly similar. <P> The simulations show that the gains from a co-ordinated reduction are somewhat larger than from a unilateral reduction. The main reason is not terms-of-trade effects but rather spillovers from extra R&D investment. The macro-economic results do not change when an alternative, uneven distribution of the administrative burden on sectors is assumed. With this alternative distribution agriculture and services see the largest gains in production.
    Keywords: administrative burden; deregulation. europe; european union; international trade
    JEL: D58 E6 F4 K20
    Date: 2004–08
  4. By: Irina Slinko
    Abstract: What is the link between the fiscal decentralization, inequality among municipalities within a region, and Russian regions' welfare? Despite the conventional wisdom that fiscal decentralization is beneficial, the author suggests that the poor Russian regions do not always gain from decentralization. The author also suggests that a low initial capital endowment and long-term credit market imperfections could lead to the situation when fiscal decentralization fosters inequality within a region which, in turn, could slow down the overall regional growth. The analysis is conducted using an extensive panel dataset of Russian municipalities
    JEL: H71 H72
    Date: 2003–04–03
  5. By: Sergey Kokovin; Evgeniy Zhelobodko
    Abstract: In this normative study of fiscal competition mechanism, we allow for various schemes of taxation, various mobility of tax-base, non-identical regions, and nonbenevolent governments. We examine the fundamental trade-o® between “negative externalities” of the competition and benefits from its budget discipline. Some indicators of regional “rivalry” and “non-benevolence” are constructed for diagnosing marginal “over-taxing” in any region. It enables also “in-large” comparison of fiscal regimes. Under some restrictions on the country’s heterogeneity in tax rates, marginal “over-taxing” at competition signifies that switching to certain sort of tax co-ordination would deteriorate welfare.
    JEL: H73 H32 D43
    Date: 2004–07–19
  6. By: Sergey Verstyuk
    Abstract: This empirical research aims to test for the presence of opportunistic electoral business cycles in Ukraine. National and regional-level data on budget revenues and expenditures, output, unemployment rate, wages, and wage arrears (and prices, subject to the availability of data) will be employed. We will try to evaluate the magnitudes of electoral cycles, and check whether magnitude decreases with rationality of voters.
    JEL: D72 E32 E62 H71 H72
  7. By: Tiago V. de V. Cavalcanti; José Tavares
    Abstract: The secular rise in female labor force participation, highlighted in the recent macroeconomics literature on growth and structural change, has been associated with the declining price and wider availability of home appliances. This paper uses a new and unique country dataset on the price of home appliances to test its impact on female labor supply. We assess the role of the price of appliances in raising participation by comparing it to the impact of fertility and other macroeconomic factors. A decrease in the relative price of appliances - the ratio of the price of appliances to the consumer price index - leads to a substantial and statistically significant increase in female labor force participation. The impact of the price of appliances is quantitatively of the same order of magnitude as that of fertility. This result is robust to the inclusion of additional controls, such as income per capita, government spending, and male and female unemployment rates. To assess causality, we test for exogeneity and use the lagged relative price of appliances and the food price index as instrumental variables, confirming that lower appliance prices lead to increased female participation.
    JEL: O11 J22
    Date: 2004
  8. By: Arantza Gorostiage (Unversidad del País Vasco); Juan F. Rubio-Ramírez (Federal Reserve Bank of Atlanta)
    Keywords: redistribution policy, minimum wage, Ramsey Problem
    JEL: E62 H21
    Date: 2004–12–02
  9. By: Selén, Jan (Trade Union Institute for Economic Research); Ståhlberg, Ann-Charlotte (SOFI)
    Abstract: The paper compares the distribution of individuals’ wage to the distribution of labor compensation when important non-wage benefits are included. In our study for Sweden focus is on pensions, survivors’ benefits and sickness benefits. These are non-observed. A method of estimating these benefits indirectly is proposed and used to examine their contributions to overall earnings inequality. We find that insurance benefits increased annual earnings inequality by 40 percent. The share of the benefits to total earnings is 22 percent. The effect of the benefits is minor for blue collars and municipal white collars, while it is high for private white collars.
    Keywords: Non-wage benefits; Compensation inequality; Wage inequality; Pension benefits; Sickness benefits; Survivors’ benefits; Collective-agreement insurance; Social insurance
    JEL: H55 J32
    Date: 2004–12–07
  10. By: Kruse, Agneta (Department of Economics, Lund University); Nyberg, Kristian (National Board of Social Insurance)
    Abstract: Ageing gives rise to concern about the sustainability of pay-as-you-go pension systems. One reform option suggested is to make the system actuarial by a tight connection between contributions and benefits. The incentives for the individual will then coincide with the interest of the pension collective. However, the individual actions – fertility decisions, working hours, timing of retirement – also contain a collective part not taken into consideration in the individual’s utility maximisation, a 1/N problem. As pay-as you-go systems are indexed by growth, the index (rate of return) is influenced by these actions even if the system is ‘actuarially fair’. We trace the effects of changes in fertility and early exit/changes in working hours on different generations in an overlapping generation model. The economic model (a stylised model of the economy in aggregate and the pension system) is fitted into a simulation model. We show that the collective effect /external effects are far from negligible. Different measures to cope with these effects are discussed.
    Keywords: pensions; demographics; external effects; OLG-model
    JEL: D62 H55 J26
    Date: 2004–12–02
  11. By: Dahlberg, Matz (Department of Economics); Edmark, Karin (Department of Economics)
    Abstract: In this paper we investigate whether local governments react on the welfare benefit levels in neighboring jurisdictions when setting their own benefit levels. We solve the simultaneity problem arising from the welfare game by utilizing a policy intervention; more specifically, we use a centrally geared exogenous placement of a highly welfare prone group (refugees) among Swedish municipalities as an instrument. The IV estimates indicate that there exists a "race-to-the-bottom" and that the effect is economically as well as statistically significant; if the neighboring municipalities decrease their welfare benefit level with 100 SEK, a municipality decreases its benefit level with approximately 59 SEK. This result is robust to several alternative model specifications.
    Keywords: Welfare benefit level; Strategic interactions; Race-to-the-bottom; Policy intervention
    JEL: C33 D60 H73
    Date: 2004–11–24
  12. By: Ejermo, Olof (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Although Sweden is one of the most R&D-intensive OECD-countries, the importance of R&D spillovers in the country has not been systematically analyzed. This paper employs a cross-sectional dataset of 264 R&D-performing Swedish firms from 1996-97. With this set, knowledge production functions are estimated, where industry groups are treated as subsamples. In addition, 160,614 non R&D-performing firms are used to examine the effects of R&D spillovers also among non R&D-performers. The estimations use three different weight methods for R&D that spills over from other industries: two input-output measures and a technology flow matrix in the spirit of Jaffe (1986). The results indicate that R&D-performing firms gain in Total Factor Productivity from their own R&D. In two of the three weighing matrices spillovers from R&D result in higher Total Factor Productivity among R&D-performers. Among non R&D-performers, the Total Factor Productivity effect of R&D-spillovers is robustly positive and significant across specifications. Examination of the social returns of R&D from specific industries, one at a time, on other industries does not reveal substantial social effects beyond the effect on the own firm. It is reasoned that the most likely reason for the small size of R&D-spillovers rests in the Swedish corporate structure, with most R&D being conducted by large multinationals.
    Keywords: Interindustry R&D spillovers; total factor productivity; rate of return to R&D; Sweden
    JEL: D24 H41 L60 O31
    Date: 2004–11–29
  13. By: Gråsjö, Urban (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The main purpose in this paper is to study to what extent accessibility to R&D can explain patent production. Therefore a knowledge production function is estimated both on aggregated level and for different industrial sectors. The output of the knowledge production is the number patent applications in Swedish municipalities from 1994 to 1999. In order to account for the importance of proximity, the explanatory variables are expressed as accessibilities to university and company R&D. The total accessibility is then decomposed into local, intra-regional and inter-regional accessibility to R&D. The results indicate that high accessibility (local) to company R&D has the greatest effect on patent production. Local accessibility to university R&D has also a significant positive effect but the magnitude is smaller. There is also evidence that intra-regional accessibility to company R&D affects patent production positively.
    Keywords: Innovations; patents; R&D; knowledge production functions
    JEL: H41 O33 R11
    Date: 2004–12–02
  14. By: Daniel Gottlieb; Lucas Maestri
    Abstract: In this paper we analyze the optimality of allowing firms to observe signals of workers' characteristics in an optimal taxation framework. We show that it is always optimal to prohibit signals that disclose information about differences in the intrinsic productivities of workers like mandatory health exams and IQ tests, for example. On the other hand, it is never optimal to forbid signals that reveal information about the comparative advantages of workers like their specialization and profession. When signals are mixed (they disclose both types of information), there is a trade-off between efficiency and equity. It is optimal to prohibit signals with sufficiently low comparative advantage content.
    JEL: H21 H24
    Date: 2004
  15. By: Valentino Larcinese (London School of Economics and Political Science, Department of Government and STICERD); Leonzio Rizzo (Universita’ di Ferrara, Department of Economics); Cecilia Testa (Department of Economics, Royal Holloway, University of London)
    Abstract: This paper provides new evidence on the determinants of the allocation of the US federal budget to the states. We find that the president has a strong influence on the budget allocation, while support for theories that give prominence to the Congress is rather weak. Membership of prestige committees is not used to divert federal spending nor does membership of the Armed Services committee affects defense spending. The presidential race matters. States that are historically volatile or extremely safe in presidential elections tend to receive more funds, while marginal states are not rewarded. Finally, we find good evidence in support of partisan theories. states whose governor has the same political affiliation of the president receive more federal funds, while states opposing the president’s party in Congressional elections are penalized.
    Keywords: Federal Budget, Pork-Barrell, President, Congress, Political Parties, Committees, American Elections.
    JEL: D72 D78 H11 H60 H77 H50
    Date: 2004–10
  16. By: Stöwhase, Sven
    Abstract: This paper analyses capital tax competition between jurisdictions of different size when multinational firms can shift some fraction of their tax base between them. For the case of revenue maximizing governments, we show that introducing profit shifting will not generally increase downward pressure on tax rates. We find that profit shifting decreases the tax-base elasticity of the low tax jurisdiction while increasing the elasticity of the high tax jurisdiction. Therefore, by the direct (impact) effect, tax rates will converge as a result of additional profit shifting opportunities. In general equilibrium, however, tax rates may decrease or increase in both jurisdictions.
    JEL: H32 H26 H25 F23
    Date: 2004–12
  17. By: John Spraggon
    Abstract: The ability of four contracts within the general class of exogenous targeting instruments, proposed by Segerson (1988), to induce socially optimal outcomes in a group moral hazard environment is investigated in an experiment based on Nalbantian and Schotter (1987). Both contracts based on the Holmstrom (1982) forcing contract with multiple equilibria, and contracts based on the Segerson study with unique equilibria are tested. My result -- that contracts can be designed that mitigate the moral hazard problem at the aggregate level -- is a significant advance on the result of Nalbantian and Schotter -- that costly monitoring or competitive teams are required to solve the moral hazard problem. It is shown that this result is robust to uncertainty as well as experience. However, none of the contracts insures compliance at the individual level, and as a result hefty fines may be accrued by individuals even when they choose the socially optimal action.
    JEL: H21 C92
    Date: 1998–01
  18. By: Randall Morck
    Abstract: Arguments for eliminating the double taxation of dividends apply only to dividends paid by corporations to individuals. The double (and multiple) taxation of dividends paid by one firm to another %uF818 intercorporate dividends - was explicitly included in the 1930s as part of a package of tax and other policies aimed at eliminating United States pyramidal business groups. These structures remain the predominant form of corporate organization outside the United States. The first Roosevelt administration associated them with corporate governance problems, corporate tax avoidance, market power, and an objectionable concentration of economic power. Future tax reforms in the United States should mind the original intent of Congress and the President regarding intercorporate dividend taxation. Foreign governments may find the American experience of value should they desire to eliminate their business groups.
    JEL: H1 G3
    Date: 2004–12
  19. By: Sita Nataraj; John B. Shoven
    Abstract: In order to ease the burden on workers during the retirement of the baby boom generation, the 1983 Social Security Reforms set payroll taxes above the level needed to pay current benefits, thus partially prefunding the baby boomers' retirement. The military and civil service retirement programs followed suit in the mid-1980s and switched from pay-as-you-go financing to funded systems. The excess income generated by these retirement programs was held in the federal trust funds, which have accumulated almost $3 trillion since the reforms took place. However, this paper presents evidence that the trust fund build-up may not help future generations due to the adoption of the Unified Budget in 1970. The Unified Budget includes trust fund receipts as income and trust fund payments as expenditures. The empirical evidence suggests that attempts to balance the Unified Budget while the trust funds were generating surpluses has led to increased government spending and personal and corporation income tax cuts within the rest of the federal government. There is no evidence of increased government saving as a result of the trust fund accumulations. An alternate theory of increased national saving is also explored, where increased payroll taxes accompanied by decreased income taxes induces higher personal saving. This mechanism, suggested by Diamond, also does not appear to have significantly enhanced the wealth of future generations.
    JEL: H0
    Date: 2004–12
  20. By: Samuel Bowles (University of Massachusetts Amherst); Yongjin Park (Connecticut College)
    Abstract: We investigate Veblen effects on work hours, namely the way that a desire to emulate the consumption standards of the rich induces longer work hours among the rest. Consistent with our model of these asymmetric social comparisons, greater inequality predicts longer work hours in ten OECD countries over the period 1963-1998. The country fixed effects estimates of the impact of inequality on hours are large, robust, and cannot be explained by conventional incentive effects. In the presence of Veblen effects, a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by progressive consumption taxes.
    Keywords: Interdependent utility, relative income, social comparisons, inequality, emulation, Veblen effects, work hours
    JEL: H23 D31 D62 J22
    Date: 2004–11
  21. By: Joydeep Roy (Economic Policy Institute)
    Abstract: In 1983 the ruling communists in the Indian state of West Bengal, with the avowed objective of making education more accessible, abolished the teaching of English at the primary level from public schools. I argue that the abolition can be looked upon as a lowering of academic standards, and that the reform is essentially redistributive in nature. Using two large cross-sectional data sets from India I investigate how it affected educational outcomes in West Bengal. Somewhat surprisingly, I find no evidence of a positive effect of the reform, even on the poorest income quartiles. Moreover, private school attendance went up in the rural areas, and there was a large increase in expenditure on private coaching. Both of these indicate that those who can afford to do so were supplementing the education of their children by private purchases, since a knowledge of English has significant benefits later in life. Ironically, the program may have increased the gap between the poorer classes and the others, something it was designed to close.
    Keywords: Education Policy, Academic Standards, Inequality and Redistribution
    JEL: H4 I2
    Date: 2004–12–05
  22. By: Marcel Gérard
    Abstract: Beyond the traditional debates over information exchange vs flat taxation at source, legislative advances have produced interesting innovations and suggestions concerning how to tax international savings. We examine some of these advances, which we then use to set forth and investigate a proposal for European and international savings taxation. That proposition combines the outcome of a recent Dutch reform and lessons from the US qualified intermediaries mechanism. We show that such a system exhibits the same desirable properties as exchange of information, but potentially at reduced compliance cost, and is sustainable within a repeated game framework.
    Keywords: European Union, international taxation, savings income
    JEL: H31 H73 H87
    Date: 2004
  23. By: Johannes Becker; Clemens Fuest
    Abstract: Forward looking measures like the well-known effective marginal tax rate developed by King and Fullerton (1984) are often criticized for not taking into account the complexity of the tax law. This paper derives a method of evaluating this kind of measure and of quantifying the bias resulting from simplifying assumptions, especially on the pattern of depreciation deductions. We apply our method to German data and find that even small estimation biases in determining the tax deductions have a large impact on the effective tax rates for marginal and inframarginal investment projects. We conclude that our method may be used to quantify exactly the difference between the actual use of depreciation deductions and the King-Fullerton assumptions and therefore to correct the conventional forward looking measures.
    Keywords: effective tax rates, corporate taxation
    JEL: H21 H25
    Date: 2004
  24. By: Xavier Labandeira (rede & Department of Applied Economics. University of Vigo); Jose M. Labeaga (Department of Economic Analysis 2. UNED); Miguel Rodriguez (rede & Department of Applied Economics. University of Vigo)
    Abstract: In this paper we present a microsimulation model to calculate the effects of hypothetical ex-ante price changes in the Spanish energy domain. The model rests on our prior estimation of a demand system which is especially designed for simultaneous analysis of different energy goods and uses household data from 1973 to 1995. Our objective is to obtain in-depth information on the behavioural responses by different types of households, which will allow us to determine the welfare effects of such price changes, their distribution across society and the environmental consequences within the residential sector. Although the model used is able to reproduce any type of price change, we illustrate the paper with an actual simulation of the effects of energy taxes that resemble a 50 Euro tax on CO2 (carbon dioxide) emissions. The results show a significant response by households, sizeable emission reductions, tax revenues, welfare changes and distributional effects. The simulated policy can thus be considered a feasible option to tackle some of the current and severe inefficiencies in Spanish energy and environmental domains.
    Keywords: Energy, taxation, demand, Spain; CO2
    JEL: D6 D7 H
    Date: 2004–12–02
  25. By: Pierre-Pascal Gendron (The Business School, Humber Institute of Technology & Advanced Learning and International Tax Program, Rotman School of Management, University of Toronto); Gordon Anderson (Department of Economics, University of Toronto); Jack M. Mintz (Rotman School of Management, University of Toronto)
    Abstract: An empirical model is developed to estimate the probability of a given tax status based on firm characteristics. A structural switching regression model of the firm’s demand for capital goods is next specified and incorporates expressions for the user cost of capital which account for tax asymmetries. The switching model, which incorporates the estimated tax status probabilities, is used to investigate the potential endogeneity of the cost of capital using a balanced panel of Canadian companies over the period 1976-94. Empirical results suggest that tax status affects capital acquisition behaviour.
    Keywords: Corporation Tax, Losses, Investment, Regime Switching
    JEL: H25 E22
    Date: 2003–10
  26. By: Richard M. Bird (International Tax Program, Rotman School of Management, University of Toronto); Jorge Martinez-Vazquez (Andrew Young School of Public Policy, Georgia State University); Benno Torgler (University of Basel)
    Abstract: The main theme of this paper is that a more legitimate and responsive state appears to be an essential precondition for a more adequate level of tax effort in developing countries. While at first glace giving such advice to poor countries seeking to increase their tax ratios may not seem more helpful than telling them to find oil, it is presumably more feasible for people to improve their governing institutions than to rearrange nature’s bounty. Furthermore, improving social institutions, such as enhancing the rule of law and reducing corruption, may not take longer nor be necessarily more difficult than changing the opportunities for tax handles and economic structure, such as the relative share of the non-agriculture sector in the economy or the weight of imports and exports in GDP. The most important contribution of this paper is to extend the conventional model of tax effort by showing that not only do supply factors matter, but that societal institutions (demand factors) also determine tax effort to a significant extent.
    JEL: H11 H20 O17
    Date: 2004
  27. By: Kelly D. Edmiston (Federal Reserve Bank of Kansas City); Richard M. Bird (University of Toronto)
    Abstract: In Jamaica, as in most countries, consumption taxes in the form of a value-added tax called the General Consumption Tax (GCT) and several excise taxes collectively known as the Special Consumption Tax (SCT) are critically important revenue sources, accounting for 37.4 percent of total revenues in fiscal year 2003/04 (27.7 percent for GCT alone) and an estimated 11.2 percent of GDP (8.3 percent for GCT alone). This paper first describes in some detail the present structure and administration of the GCT and SCT and then evaluates the performance of these taxes from several angles -- as revenue generators, with respect to their distributional effects and their relation to the shadow economic, their administrative aspect, and in international perspective. It concludes by setting out a number of recommendations for reform.
    JEL: H27 H22 O17
    Date: 2004–12
  28. By: John P. Conley (Department of Economics, Vanderbilt University); Stefani C. Smith
    Abstract: We consider a general equilibrium economy with public goods and externalities. Following Boyd and Conley (1997), we treat externality markets directly instead of indirectly through Arrovian commodities. Because such direct externality markets are not subject to the nonconvexities that Starrett (1972) shows are fundamental to Arrow's externality markets, this new approach admits the use of largely standard methods to prove welfare and existence theorems in an economy with externalities. We extend the Boyd and Conley model to allow firms to benefit from public goods and be damaged by externalities, and to allow consumers to produce externalities. We state a first welfare theorem and prove the existence of a competitive equilibrium. Taken together, this can be viewed as a type of general equilibrium Coase Theorem. Considered as a special case, these theorems also represent a significant generalization of existing results for pure public goods economies.
    Keywords: Externalities, Coase Theorem, Arrow commodities, pollution permits, property rights, Lindahl Equilibrium
    JEL: H41 H23
  29. By: Ellen R. McGrattan; Edward C. Prescott
    Date: 2004–12–02
  30. By: Craig Brett (Department of Economics, Mount Allison University); John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: Comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally. There are two types of individuals, distinguished by their skill levels, who have the same quasilinear preferences for labour supply and the consumption of a private and a public good. The parameters for which comparative statics are obtained are the weights in a weighted utilitarian social welfare function, the prices of the private and public goods, a taste parameter that measures the onerousness of working, and the individual skill levels.
    Keywords: Optimal income taxation, public goods, comparative statics
    JEL: D82 H21 H41
    Date: 2004–06
  31. By: Narayana Kocherlakota
    Date: 2004–12–02
  32. By: Monique Florenzano (CERMSEM); Elena Laureana Del Mercato (Universitˆ degli Studi di Salerno)
    Abstract: In this paper, we propose a definition of Edgeworth equilibrium for a private ownership production economy with possibly infinitely many private goods and a finite number of pure public goods. We show that Edgeworth equilibria exist and can be decentralized as Lindahl-Foley equilibria, whatever be the dimension of the private goods space. Existence theorems for Lindahl-Foley equilibria are a by-product of our results.
    Keywords: Production economy, public goods, Edgeworth equilibrium, Lindhal equilibrium, proper economy
    JEL: D46 D51 H21 H41
    Date: 2004–07
  33. By: Céline Azémar (TEAM); Rodolphe Desbordes (TEAM); Jean-Louis Mucchielli (TEAM)
    Abstract: This paper analyses the impact of tax sparing agreements on Japanese foreign direct investment (FDI) distribution in developing countries. These agreements are sometimes concluded between a developed country and a developing country which grants fiscal incentives to foreign investors. In that case, the former agrees not to tax its outward investors in order that the host country fiscal advantage is not compensated for by the increase in its own income taxes. Apart from the United States, the majority of developed countries have included these tax sparing provisions in their fiscal bilateral treaties with developing countries. Their inmpacts are observed on the distribution of Japanese FDI outflows and average size of capital transaction, on the Japanese firm sales and employment as well as on the difference between the Japanese and U.S. FDI shares, over the 1989-2000 period. The empirical results suggest that each additional year, subsequent to the signature of a tax sparing agreement, increases Japanese FDI activity by 1.7-11%. These findings are robust to the use of an instrumental variable specification and give empirical support to the debate on the exclusion or not of these provisions under the bilateral tax treaty. Thus, this study confirms that tax sparing agreements can be useful instruments to increase the attractiveness of a developing country.
    Keywords: Foreign direct investment, fiscal incentives, tax sparing
    JEL: F23 H25 H32
    Date: 2004–06
  34. By: Steffen Huck; Philippe Jehiel
    Date: 2004–12–02
  35. By: Falilou Fall (EUREQua)
    Abstract: In OLG framework, it is generally admitted that PAYG pension system generates a lower capital accumulation, a higher level of interest rate but is more inequality reducing. By taking into account different assets returns and unequal acces to them, we find that the PAYG pension system generates lower level of interest rate and increases wealth inequality. By using Matsuyama's (2000) technology that generates dynamic endogenous inequality, we represent the bequest and saving behavior of the agents in an OLG model. This allows us to characterize the optimal investment choice of agents across two assets as a function of their initial endowment and a unique inheritance threshold depending on the equilibrium interest rate. This inheritance threshold divides the population into two categories : the rich-borrowers and the poor-lenders. In this context, we find that, the effect of increasing the contribution rate to the pension system is to increase inequality. Indeed, it increases the number of constrained agents and decreases the equilibrium interest rate. More the initial wealth distribution is egalitarian, more these effects are amplified. As the interest rate is the lending rate of poor-constrained agents, they lose from the reform while unconstrained-rich agents benefit from the reform since the decrease of the interest rate increases the net return of their investment. Unconstrained-rich agents benefit from the reform at the expense of constrained-poor agents.
    Keywords: Pension reform, inequality, incomplete markets, savings, wealth distribution
    JEL: D31 D52 D91 H24 H55
    Date: 2004–03
  36. By: Satish Chand
    Abstract: If capital for corporate finance was available from a common global pool and at zero transaction cost, then does after-tax arbitrage require harmonisation of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice in deciding the fraction of income that it distributes as dividends with the remainder held for future capitalisation, then such choice brings about arbitrage in after-tax rates of return to investors facing a common pre-tax return but different rates of income taxes. Policy implications are drawn from this result.
    JEL: H25
    Date: 2002
  37. By: Elizabeth H. Petersen; Steven Schilizzi; David Bennett
    Abstract: Three policy options for greenhouse gas abatement in the predominantly grazing systems of Western Australia are analysed. The two taxation policies (a tax on total emissions, and a tax on methane emissions only) are only effective at extreme tax rates ($85/t CO2 equivalents)where farming systems are no longer economically viable. The third policy option, emission restrictions, allows farms to remain profitable at approximately four times greater abatement levels than the taxation policies, and is found to be the most effective and efficient policy option studied. However, it is concluded that the introduction of any farm-level policy for greenhouse gas abatement would be politically unpopular and, in the absence of swift and innovative technological change, would cause the current farming systems to fail and be replaced by alternative land-uses.
    JEL: H23
    Date: 2002
  38. By: André Portela Souza; Hélio Zylberstajn; Luís Eduardo Afonso; Priscilla Matias Flori
    Abstract: This article focuses on the reform of Social Security in Brazil, initiated in 2003. We estimate the fiscal impact of the original government proposal, as well as of the proposal approved at the House of Representatives, and the final format approved at the Senate. We also estimated both, the balancing contribution rate and the effective contribution rate, in the three phases of the reforming process. Results indicate that although the final impact was considerably reduced from the initial project, a great deal of progress has been made towards both, the reduction of annual Social Security deficit and its transformation into a more equitable system.
    JEL: H55
    Date: 2004

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